1099 Reporting When Exchanging into another Property

Form 1099 for a 1031 Exchange

In the beginning of a 1031 deferred exchange, when the closing of the relinquished property occurs, the title company or escrow closing company typically has the responsibility to report the seller/exchangor’s disposition to the IRS on a IRS Form 1099-S. This is to ensure that the IRS will have a record of the transaction.

Reporting the Transaction on Form 1099

This often brings raises several questions among the title company or escrow closing company, such as:

  • How do we report the seller/exchangor’s transaction on the 1099?
  • Should we indicate that the seller will receive property as part of an “exchange” in box #4, since the seller/exchangor’s will likely be exchanging into another property?

Box #4

According to the IRS instructions, Box #4 is for when the seller receives something other than cash or cash-equivalent as part of the consideration paid for the relinquished property.

Generally, in a 1031 exchange the only consideration paid is “cash,” and that goes to the seller/exchangor’s qualified intermediary, so Box #4 would typically not be applicable. However, if the transaction involves other non-cash payments from the buyer, such as a promissory note, property or services rendered as partial consideration/payment for the purchased property, then Box #4 would be have to be checked.

For more information on 1099 reporting requirements, check out our previous article

  • 1031 Hotline: If you have questions about 1099 reporting when it comes to 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Jeffrey R. Peterson – All Rights Reserved